ISSUES

Whether a loan agreement entered into between the appellant and two borrowers, which was in the nature of mortgage, precluded the borrowers or their successors-in-title from redeeming the mortgage by paying off the balance of the capital and interest or whether it had to run the full term of 35 years.

FACTS

The respondents were respectively the wife and son of one Lawrence Okonkwo (now deceased) who, together with another person, had taken a loan from the appellant in 1966. The loan took the form of a mortgage. The money advanced through the loan was used to develop certain property. The terms of the agreement were that the lender will be entitled to 50 per cent of the rent that accrued on the property developed for 35 years. After the death of the borrowers, the first respondent undertook to pay off the outstanding balance of the loan. That offer was refused by the appellant, who insisted on continuing to exercise his rights under the original loan agreement.

The first respondent refused to continue sharing the rent with the appellant, and the latter then instituted action in the High Court, seeking declaratory and injunctive relief against the respondents. By the time the matter went before the court, the parties had settled some of the issues, and the only remaining dispute related to the validity of the loan agreement. The court found against the appellant and issued an order that the covenant not to redeem until 35 years has elapsed was irregular and could not stand, and that the appellant as mortgagee was entitled to the payment of his principal, interest and costs only. As a result of that order, the appellant appealed to the Court of Appeal which dismissed his appeal, and further appeal was made to the Supreme Court. The Appeal was dismissed.

HELD (Unanimously dismissing the appeal)

1.      On the provisions of a valid legal mortgage

The main elements of a legal mortgage are described in the authorities as "(1) a covenant to pay the principal debt and interest on a given date; (2) a covenant to pay interest in the event of default in payment of the principal on the day named; (3) the demise or sub-demise of, or the charge by way of legal mortgage on, the mortgaged property; (4) the proviso for cessor; and (5) such variations of the statutory provisions with regard to mortgages as the arrangement between the parties requires". Ogundare, JSC, at page 320.

2.      On the equity of redemption

The appellant's contention that the mortgage could not be redeemed until the expiration of the 35 years provided for in the contract is contrary to the concept of the equity of redemption. The latter term refers to the right of the mortgagor to redeem, incident to every mortgage. The right to redeem is an inseparable incident of a mortgage that it cannot be taken away by an expressed agreement of the parties that the mortgage is not to be redeemable or that the right is to be confined to a particular time. It continues unless and until the mortgagor's title is extinguished or his interest is destroyed by sale either under the process of the court or of a power in the mortgage incidental to the security. Ogundare, JSC, at page 322.

2. On the barring of the right of redemption

Any agreement which directly bars the mortgagor's right to redemption is ineffectual. Iguh, JSC, at page 322.

J. M. C. Agbu, Esq. for appellant.

Chief J. C. Ifebunandu with him A. Agwuanyi for respondents.

The following cases were referred to in this judgment:

Nigeria

Alhaji K O S Are & another v Raji Ipaye & others (1990) 2 NWLR (Part 132) 298

Lokoyi v Olojo (1983) 8 SC 61

Nwadike v Ibekwe (1987) 4 NWLR (Part 67) 718

Obodo v Enarofia (1980) 5-7 SC 42

Ojomu v Ajao (1983) 9 SC 22

Otogbolu v Okeluwa (1981) 6-7 SC 99

Foreign

Grangeside Properties Ltd v Collingwoods Securities Ltd (1964) 1 WLR 140

Lovegrove, Re (1935) Ch 464

Radcliffe v Warrington, 17 Ves 332

Salt v Marquis of Northampton (1892) AC 1

Seton v Slade, Hunter v Seton (1802) / Ves 265-273; 34 ER 984-985

Watson, Re, ex parte Official Receiver in Bankruptcy (1890) 25 QBD 27

The following book was referred to in this judgment:

Halsbury's Laws of England (4ed) Volume 32 at paragraph 498

Ogundare, JSC (Delivered the Leading Judgment):- Sometime in 1966, Lawrence Okonkwo and Samuel Okonkwo (both now deceased) borrowed from Edwin O. C. Ejikeme the sum of £3,700 (now N7,400) with which they developed a property at 3 Iweka Road, Onitsha. The parties entered into agreement under seal which agreement was registered in the Lands Registry in the office at Enugu. Part of the recitals of the agreement reads as follows:-

"2.     The Borrowers are in course of erecting on the said property dwelling house and has requested the mortgagee for the purpose of completing such dwelling house to lend to them the sum of £3,700 (N7,499).

'And whereas the mortgagee has agreed with the borrowers to lend to them the sum of £3,700 out of the money belonging to his family upon having the repayment thereof as hereinafter mentioned and secured in a manner hereinafter appearing.' "

The agreement demised unto the lender:-

"All that plot of land with the dwelling house thereon situate at and known as and called No 3 Iweka Road, Onisha to hold the same unto the mortgagee for the term of 35 years from the first day of July 1966."

Paragraph 6 of the agreement or deed provides:-

"6.     Provided always that if the said sum of £3,700 with compound interest thereon as aforesaid shall be paid to the mortgagee by way of half the rents collected from the secured property monthly for a period of 35 years and in accordance with the foregoing convenant, (sic) the said hereditaments comprised in this security shall at the request and cost of the Borrowers and Mortgagee be re-assigned to him at the end of 35 years from the date of this mortgage."

The Lender by virtue of the agreement was being paid by the Borrowers half the rent they were collecting from tenants in the house. The borrowers died during the Civil War and Veronica Okonkwo and Ndubisi Okonkwo - wife and son respectively of Lawrence Okonkwo took out letters of administration with one other person Elizer Okonkwo in respect of the estate of Lawrence Okonkwo. In 1982 by a letter dated 19 May and addressed to Ejikeme, the Lender, Veronica gave notice of her intention:-

"to pay off all the outstanding balance of the loan plus interest due thereon as at 20 June 1982."

Ejikeme replied through his solicitor that he would insist on his rights under the agreement, that is, he would continue to collect 50 percent of the rent accruing from the property for 35 years as stipulated in the agreement. He refused to accept the offer made by Veronica Okonkwo. Thereupon, Veronica refused to share the rent with Ejikeme who then instituted the action leading to this appeal claiming as per paragraph 10 of the Statement of Claim against Veronica and Ndubisi as hereunder:-

"1.     A declaration that the plaintiff is entitled to fifty percent of all the rents collected from the house known as and called No 3 Iweka Road Onitsha for a period of thirty-five years from 1 July 1966.

2.      A perpetual injunction restraining the defendants either by themselves, their servant or agents from collecting rents on the said house to the exclusion of the plaintiff.

3.      An account of all the money collected by the defendants in respect of the house from the 19 December 1983 up to date of the judgment."

Pleadings having been filed and exchanged the defendants in their Statement of Defence and Counterclaim claimed as follows:-

"(a) A declaration that the purported mortgage dated 26 May 1966 made between the plaintiff and late Mr Lawrence Okonkwo, Samuel Okonkwo and registered as No 27 at page 27 in Vol. 448 of the Lands Registry Enugu is void.

Alternatively

(b)     An order setting aside the said deed of mortgage."

The plaintiff did not file a defence to the counter claim. The action proceeded to trial. On the date fixed for the trial however, learned Counsel for both parties informed the court that they had settled issues and that the only issue calling for determination was whether the agreement was valid or not. Both referred to the agreement as a mortgage and the case was fought on the premise that it was a mortgage. Learned Counsel addressed the court. In his judgment the learned trial Judge dismissed plaintiff's claims and allowed the defendants' counter claim. He ordered as follows:-

"1.     The convenant (sic) not to redeem until 35 years has elapsed is irregular, a clogg on the mortgage and cannot stand. The defendant is therefore entitled to an immediate right of redemption in this case.

2.      The Mortgagee is entitled to the payment of his principal, interest and costs only. This in concrete terms means that the mortgagee is entitled to the repayment of the sum of N7,400 plus compound interest of 9 percent till the mortgage property is redeemed."

Being dissatisfied with this judgment the plaintiff appealed to the Court of Appeal which latter Court dismissed the appeal and affirmed the judgment of the trial High Court. The Court of Appeal ordered as follows:-

". . . it will cause unfair hardship to the defendants to pay interest as from 1 July 1982 right through till now since as at 30 June 1982 they had evinced an intention to pay off the loan and interest but for the refusal of the plaintiff. Compound interest at 9 percent for about six and half years now will come to about N5,000. The defendants cannot be expected to bear that in the circumstances.

It is therefore ordered that the interest due shall be calculated up to 30 June 1982 and to commence again from today's date until the defendants redeem the property."

Being again dissatisfied, the plaintiff has further appealed to this Court upon two grounds of appeal which read as follows:-

"(1)    Error in Law

The Court of Appeal erred in law in the following passage in its judgment:-

'It will be seen that there was a proviso for reconveyance contained in clause 7 already set out upon payment of all moneys thereby covenanted to be paid. The redemption clause was however not elegantly expressed. It contains typographical and other errors and or omissions. For instance the word 'mortgage' should read 'mortgage.' A few words have also been omitted between the words 'mortgage by way' and 'or half the rents'. The entire proviso should read something like this:-

'Provided always that if the said sum of £3,700 (three thousand and seven hundred pounds) With compound interest thereon as aforesaid shall be paid to the mortgagee by way of a lump sum or half the rents collected from the secured property monthly for a period of 35 (thirty five) years and in accordance with the foregoing covenant the said hereditaments comprised in the security shall at the request and (sic) of the Borrowers and Mortgagee be reassigned to him at the end of 35(thirty five) years from the date of this Mortage (sic) It seems to me that it was the intention of the parties that when the Borrowers were able to pay off the loan by lump sum they should be free to do so and were it otherwise, clause 7 would have been unnecessary repetition of clause 1.'

Particulars

(i) Clause 7 of Exhibit 'A' says nothing about the repayment of the mortgage loan. Clause 6 which the Court of Appeal referred to as clause 7 provides as follows:-

'(6) Provided always that if the said sum of £3,700 (three thousand and seven hundred pounds) with compound interest thereon as aforesaid shall be paid to the Mortgage by way or half the rents collected from the secured property mortgage for a period of 35 (thirty-five) years and in accordance with the foregoing covenant the said hereditaments comprised in this security shall at the request and cost of the Borrowers and Mortgage be reassigned to him at the end of 35 (thirty five) years from the date of this mortgage.'

This clause emphasises clause 1 which says that the loan shall be repaid by the Borrowers by paying to be Mortgagee 50 percent or the rent collect from the mortgaged property monthly for 35 (thirty five) years.

Although the words 'mortgage' and 'or' which I have underlined should read 'mortgagee' and 'of' respectively there were no omissions in the clause as was found by the Court of appeal.

(ii) In the High Court, Onitsha, the parties did not complain that there were omissions in clause 6 of the agreement either in their pleadings or in the address of their Counsel.

(iii) The respondents' case was that no other provision was made for the repayment of the loan than by paying to the appellant 50 percent of the rents monthly for 35 (thirty five) years and that this clogged their equity of redemption.

The Court of Appeal, by supplying the words "of a lump sum" also underlined by me, has re-written clause 6 of the deed of mortgage and thereby introduced an option to repay the loan by a lump sum contrary to the expressed intention of the parties, and thereby failed to consider the issue before it, that is, whether the provision which stipulates that the plaintiff shall be entitled to 50 percent of the rents received from the mortgaged property monthly for thirty five years is a clog on the equity of redemption of the defendants. If the Court of Appeal had considered the issue before it, it could have decided in favour of the appellant.

(2)     Error in Law

The Court of Appeal erred in law and misdirected itself in the following passage in its judgment:-

'If however the redemption clause means that the mortgage could only be redeemed at the end of 35 (thirty-five) years, then the said provision for redemption is nugatory since in that even (sic) the lease could have run its span with its attendant consequences.'

Particulars

The respondents were the owners of the mortgaged property in fee simple absolute in possession (the underlining is mine). The property was demised to the appellant for thirty five years by clause 2 of Exhibit 'A'. It is inconceivable that a lease for 35 (thirty five) years granted by the respondents could adversely affect their fee simple absolute in possession.

By reason of this error in law and misdirection the Court of Appeal came to the wrong conclusion that the respondent's equity of redemption was clogged and not merely postponed."

In accordance with the rules of this Court the parties filed and exchanged their Briefs of argument. In the plaintiff/appellant's Brief, the following issues are set out as calling for determination in this appeal:-

"(i) Whether the Court of Appeal was right in holding that the redemption clause in the agreement (Exhibit 'A') gave the respondents an option to pay off the loan by any other way than by paying the appellant 50 percent of the rent collected from the building for thirty-five years.

(ii) If the answer in (i) above is in the negative; whether the Court of Appeal was right in holding that the provision that the mortgage could only be redeemed at the end of thirty-five years was a clog on the equity of redemption of the defendants and therefore nugatory."

The defendants/respondents on their part formulated the issues for determination as follows:-

"I Whether the Court of Appeal as a Court of Equity was right to interpret the contents of Exhibit 'A' as a mortgage deed in order to reach any reasonable conclusion as to its validity.

II If the answer to the above question is in the position, (sic) was the interpretation given by the Court of Appeal with regard to the validity of Exhibit 'A' that there is an option of redemption of the loan at 9 percent interest reasonable as a construction given to the deed of mortgage i.e. Exhibit 'A' ".

It will appear from the pleadings and the issues placed before the trial Judge that the main question calling for determination in this matter is as to whether the agreement between the plaintiff and the borrowers which is Exhibit 'A' in these proceedings and which is in the nature of mortgage precludes the borrowers or their successors-in-title, as in this case, from redeeming the mortgage by paying off the balance of the capital and interest or whether as contended by the plaintiff, it must run the full term of 35 years. To determine this issue, one must ask what are the provisions of a valid legal mortgage. The learned author of Halsbury's Laws of England (4ed) Vol. 32 at paragraph 498 lists the provisions of a legal mortgage as follows:-

"The main provisions of a legal mortgage are (1) a covenant to pay the principal debt and interest on a given date; (2) a covenant to pay interest in the event of default in payment of the principal on the day named; (3) the demise or sub-demise of, or the charge by way of legal mortgage on, the mortgaged property; (4) the proviso for cessor; and (5) such variations of the statutory provisions with regard to mortgages as the arrangement between the parties requires."

On the first provision, that is, covenant for repayment the learned author goes on to say:-

"The first operative part of a mortgage is usually the covenant by the mortgagor to pay the principal and interest on a day named. If there is no covenant and no accompanying bond, there is still an implied promise to pay. The promise to pay implied in an instrument under seal may amount either to a covenant or a simple contract to pay, depending upon the construction of the instrument.

As every loan transaction implies a right to be repaid, if a person lending money is never to have his principal back, there must be something very definite and clear showing that such was the condition of the contract."

On the date for repayment, the learned Author has this to say at paragraph 500:-

"Fixing a day for payment does not generally indicate the parties' intention that actual payment is to be made on the named date, but only that the mortgagee may call for payment on or at any time after that date if so minded, but not before. The date fixed is usually six months from the date of the loan or deed, but may be at the end of three months or any other period, or the loan may be made repayable upon demand. In general, the mortgagor may not repay prior to the date fixed for repayment."

I pause here to consider Exhibit 'A'. Exhibit 'A' does not contain a covenant to pay the principal's debt and interest on a given date. On the authorities however, there is an implied promise to pay and as no date has been fixed for the repayment it is my view that a reasonable time will be implied. On the second provision, that is, covenant to pay interest, although no specific interest is stated in the deed in Exhibit 'A', I agree however, with the two courts below that the interest of 9 percent mentioned in the deed in respect of further advances will apply equally to the principal sum. It does not appear that the defendants are contesting this finding as they have not appealed against it. Indeed both parties tacitly accepted that the loan was to carry 9 percent interest.

Exhibit 'A' demised unto the plaintiff by way of legal mortgage a term of 35 years.

It is the fourth requirement, the provision for cessor, that is the bone of contention in this matter. The stance of the plaintiff seems to be that the mortgage cannot be redeemed until the expiration of the 35 years lease granted the plaintiff by Exhibit 'A'. If the position of the plaintiff is correct it would appear that there is a clog on the equity of redemption. Incident to every mortgage is a right of the mortgagor to redeem - this right is generally referred to as the equity of redemption - see Seton v Slade, Hunter v Seton (1802) / Ves 265-273; 34 ER 984-985 where the following passage appears:-

"But where the question is, not whether all title is gone by force of the statute of limitations, but (as the point is put in the principal case), whether a mortgagor shall be at liberty to redeem after the day agreed upon, there equity says, relief may be given against the legal consequences of non-payment at the precise time appointed, and redemption allowed, on the ground that the whole object and original intention of the parties, was to secure, by the mortgage, repayment of the money: Radcliffe v Warrington, 17 Ves 332, 334."

The right to redeem is so inseparable an incident of a mortgage that it cannot be taken away by an expressed agreement of the parties that the mortgage is not to be redeemable or that the right is to be confined to a particular time or to a particular description of persons. The right continues unless and until the mortgagor's title is extinguished or his interest is destroyed by sale either under the process of the court or of a power in the mortgage incident to the security. This is a very important provision of a legal mortgage.

In view of the borrowers' equity of redemption therefore, the plaintiff will not be right to claim that the defendant could not redeem the mortgage by paying for the principal sum and interest until the year 2001, that is, 35 years from 1966. For this reason, therefore, the learned trial Judge was right to dismiss his claims and the Court of Appeal was right to affirm that decision.

In conclusion the plaintiff's appeal fails and it is hereby dismissed. As there is no ground of appeal attacking the conclusion of the learned trial Judge as affirmed by the Court of Appeal that the counter claim succeeded, I would say nothing on that, Suffice to say however, that in view of the time lag since the judgment of the court below and the judgment of this Court, the final order made by the Court of Appeal will be varied to read:-

"It is therefore, ordered that the interest due was to be calculated up to 30 June 1982 and to commence again from the date of this judgment (23 September 1994) until the defendants redeem the property."

In conclusion what is due to be paid to the plaintiff by the defendants by way of redemption of the mortgage shall take into consideration the amount of the monthly payments made to the plaintiff from July 1966 to the time the defendants ceased to make any further payments to the plaintiff.

I award to the defendants/respondents N1,000 costs of this appeal.

Uwais, JSC:- I have had the advantage of reading in draft the judgment read by my learned brother Ogundare, JSC I agree that the appeal has no merit. Accordingly, it is hereby dismissed with N1,000 costs to the respondents.

Kutigi, JSC:- I had a preview of the judgment of my learned brother Ogundare JSC just delivered and I entirely agree with his reasoning and conclusion that the appeal lacks merit and ought to be dismissed. I will also order the interest due to be calculated up to 30 June 1981 and to commence again from today (23 September 1994) until the respondents redeem the property. The respondents are awarded costs of N1,000 only.

Onu, JSC:- For the reasons for judgment contained in the lead judgment of my learned brother, Ogundare, JSC, a preview of which I have had, I entirely agree therewith that this appeal fails.

In the circumstances of this case wherein Exhibit 'A' is in the nature of a mortgage, to have rendered that deed irredeemable (contrary to what a true legal mortgage represents) thus preventing the respondents or their successors-in-title, the former who had offered to pay off the capital and interest sooner than the full term of 35 years set out therein from so doing, would have been tantamount to clogging their equity of redemption. Besides, these findings of the two lower courts, amounting as they do to concurrent findings of fact, this Court will be slow, as indeed it had decided through a long line of authorities, not to disturb or interfere with same unless the appellant can show special circumstances either that there has been a miscarriage of justice or a serious violation of some principles of law or procedure or that the findings are erroneous. See Alhaji K. O. S. Are & another v Raji Ipaye & others (1990) 2 NWLR (Part 132) 298 at 317; Lokoyi v Olojo (1983) 8 SC 61 at 63-73; Ojomu v Ajao (1983) 9 SC 22 at 53; Obodo v Enarofia (1980) 5-7 SC 42 at 58; Nwadike v Ibekwe (1987) 4 NWLR (Part 67) 718 and Otogbolu v Okeluwa (1981) 6-7 SC 99, to mention but a few. In the instant case, no error either latent or patent has been shown to warrant my disturbance of the decision of the court below.